Wells Fargo to pay back $1.3 billion: Investors to be reimbursed for auction rate securities

The deal, part of a tentative settlement agreement reached Wednesday with the Washington Department of Financial Institutions and the North American Securities Administrators Association, will return as much as $150 million to 300 to 400 Washington investors, as well as thousands more nationwide.

Wells Fargo is the last of the large U.S. investment banks to reach a settlement agreement after state and federal regulators launched a nationwide investigation into the auction-rate securities market in April 2008. They found a $330 billion nationwide investment scandal in which banks allegedly misled consumers about the level of risk involved in what they called auction-rate securities -- long-term municipal bonds and student loans packaged in chunks and sold as low-risk, short-term investments, similar to money market accounts.

The Washington Department of Financial Institutions led the investigation of San Francisco-based Wells Fargo with assistance from state securities regulators in California, Georgia, Missouri, Oregon, Texas and Utah.

"It was time for them to reimburse the many, many customers out there who felt they were buying something close to a cash equivalent," said Mike Stevenson, director of securities at the department.

Wells Fargo has maintained throughout the department's yearlong investigation that it did nothing wrong and that the collapse of financial markets in the past two years were beyond what anyone could have predicted.

The settlement agreements resolve the investigation, "without Wells Fargo admitting to the allegations in the various investigations and complaints," Charles W. Daggs, CEO of Wells Fargo Investments, LLC, said in a statement.

Initial estimates held Wells Fargo's ARS investments at $3.93 billion nationwide. The $1.3 billion settlement represents the portion held by individual and institutional investors who held their securities directly with Wells Fargo.

Individual investors will be fully reimbursed under the terms of the agreement, while institutional investors will face an optional buy back of their investments.

Eligible ARS investors can expect to hear from Wells Fargo within 90 days, according to the bank, which agreed to complete the buy-back by April 18.

Wells Fargo agreed to pay a $1.9 million penalty spread across all states according to the proportion of investors. A special arbitration process will be held for investors with additional claims against the company because they were unable to access their money.

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